Fund Balance Statement
Maintaining a minimum fund balance, or financial reserve, enhances financial stability for any individual or organization. Just as individuals keep a minimum balance in their checking accounts in case of emergencies, Chicago Public Schools (CPS) needs to maintain a minimum amount of funds within its operating account to ensure smooth day-to-day operations. Additionally, financial reserves provide a cushion for year-to-year fluctuations in financial performance. External stakeholders consider a minimum fund balance a hallmark of prudent financial management and a best practice for governmental organizations.
CPS adopted the Fund Balance and Budget Management policy (Board Report 08-0827-PO8) in August 2008. The goals of this policy are to maintain adequate fund balances in the various funds to provide sufficient cash flow for daily financial needs, to offset significant economic downturns or revenue shortfalls, to provide funds for unforeseen expenditures related to emergencies and to secure and maintain strong credit ratings. The definition of fund balances in this context is assets in excess of liabilities that can be spent in times of need. As a practical measure to achieve these goals in the General Fund, the Board established the Stabilization Fund, which should carry a minimum 5 percent of the operating and debt-service total budget in the following year’s budget. The stabilization fund is equivalent to an assigned fund balance under Governmental Accounting Standard Board Statement No. 54.
It is important to note that 5 percent is a minimum level of reserves as determined by external stakeholders, such as rating agencies and government watchdog groups. Rating agencies commonly view fund balances in excess of 5 percent as appropriate, and the Government Finance Officers Association recommends fund-balance levels between 5 percent and 15 percent of spending.
While CPS acknowledges the importance of maintaining a minimum level, it must balance this with advancing its core mission of ensuring that every child graduates college and career ready. Accordingly, as described fully in the next section, CPS will exhaust its reserves in FY 2014, but will develop a plan to replenish them.
FY2014 Estimated Beginning-Year Fund Balance and its Targets
When the FY2013 budget was approved, it was balanced with the use of the full-unrestricted fund balance estimated at June 30, 2012 at $348.9 million. CPS currently estimates that it will use only $229.8 million due to reduced expenses and earlier payment of state revenues.
As a result of timing shifts in revenue receipts, specifically accelerated receipts of 2012 property taxes and earlier-than-anticipated state block grant payments, the General Fund carried $792.5 million of unrestricted fund balance as of June 30, 2012.
It is important to note that the FY 2012 end of year fund balance was greater than we projected because of factors outside the control of CPS. Cook County changed the due date for the second installment of property taxes to August 1, months earlier that it had been for decades. This date change was not something that could have been anticipated at the time the budget was prepared nor could CPS have anticipated how that would impact property tax revenue in FY 2012; yet, it shifted $244 million into FY 2012. Similarly, CPS could not have anticipated that the state, despite its challenging financial condition and multi-billion dollar backlog in bills, would reduce its backlog to CPS in the month of July, providing an extra $100 million of unbudgeted revenue in FY2012.
These changes mean that the fund balance at the beginning of FY14 is projected at $562.6 million; or 9% of operating funds and debt service appropriations. FY2014 budget projections include using all $562.6 million in order to balance the budget.
The table below summarizes the fund balance targets in the policy and estimated fund balances for relevant funds for FY2014.
Status of Fund Balance Available for Appropriation at June 30, 2013 (in millions)
||FY2014 Fund Balance Target
||Estimated Balance at 6/30/2013
||Estimated Balance at 6/30/2014
|Workers’ Comp/Tort Fund
|Debt Service Funds
||Enough to cover risks
Neither the General Fund nor the Workers’ Compensation/Tort Fund will meet the fund balance targets at the end of FY2014. CPS will ask the Board to extend the deadline to replenish the fund balance for FY2014 and FY2015 while it prepares a long-term plan to return financial stability to the District.
State Payment Delay Status at the end of FY2013
CPS recognizes revenues when cash is collected within 30 days after a fiscal year ends. As of July 17, 2013, the State’s overdue payments were $1.97 million. This is significantly below the amounts overdue in the past three years, and is much closer to historical patterns.
History of State Year-End Obligation to CPS
| Amount Owed on 6/30
| Amount Owed on 7/30*
| Amount Owed on 8/31
*7/17 for 2013
FY2014 Plans for Replenishing the Fiscal Stabilization Fund
In addition to developing a long-term strategic plan to restore fiscal stability, CPS will implement the following policies in FY2014:
- Work with the Chicago Teachers Union, the Chicago Teachers Pension Fund, the governor and the General Assembly to develop and implement pension reform to reduce current and prospective pension obligations of CPS.
- Encourage the State to maintain a regular payment schedule.
- Minimize capital investment, consistent with the proposed FY2014-2018 Capital Improvement Program and seek outside sources of funding wherever feasible.
- Secure private foundation grants to pay for enrichment programs as much as possible.
- Closely monitor spending to achieve savings and efficiencies wherever possible.